Real Money: MoviePass Service Could Be the Ticket for Helios & Matheson

Have you seen Helios & Matheson (HMNY) today? Have you seen the stock this month? The stock traded at around two bucks until mid-September. This morning, the shares have traded at just under $39, and just above $28. Nothing to see here. Keep moving along. The stock closed on Friday afternoon at $15.75. So what gives? And who the heck is Helios & Matheson?

The Who?

This small-cap name is an info tech corporation. What they do for their clients is a suite of offerings in the areas of application value management, application development, integration and infrastructure, as well as analytics services. Big data is sort of what these guys do. Their clientele can be drawn from the worlds of banking, insurance, financial services and healthcare.

The What?

Can it be that this growing tech business is simply taking off, or is there more under the hood? Let's pop the hood and take a look. The stock did not move much back in August, trading steadily around $2.50 all month long. Back on Aug. 15, HMNY bought a controlling stake in an online ticketing service known as MoviePass in a $27 million transaction.

MoviePass, for those not in the know (including myself), sells a subscription that allows access to roughly 90% of movie theaters in the U.S. for $9.95 a month. Think Netflix (NFLX) but for the movies. Not too farfetched being that MoviePass is led by Mitch Lowe, one of the founders of NFLX. Hmm. Now it's starting to make sense. From August into September, monthly subscribers for this MoviePass service increased from under 20,000 to more than 400,000. Revolutionary.

While this seems great for moviegoers, it may end up being a severe negative for the movie industry ... one day. Not now. This is a market-share proposition. MoviePass clients pay the flat fee. MoviePass is still paying full price to the theaters themselves. This implies what could be tremendous losses at first, and maybe over the next couple of years, a problem that could only be rectified once the firm has pricing power over both the clients and the theaters.

What Do Others Think?

That's hard to say. The stock is not well covered. On Oct. 2, Brian Kinstlinger of the Maxim Group initiated HMNY with a Buy rating and placed a $20 price target on the stock. That target was $9 to the upside when he did that. So much for price targets. There have also been rumors on blog sites that have been taken down intimating that talks between HMNY and much larger firms took place. I won't repeat this, as I am unable to substantiate it. You can try to find it if you want.

What Do I Think?

Where there's smoke, there usually is some fire. That fire could burn in two directions. Something like 37 million Americans go to the movies at least once a month, so there clearly is a ready-made market for such an idea. Is this a pump and dump? Hard to say. What I will say is if you are indeed tempted to wet the beak on this one, lead in real small. I usually go into a long position with about a fifth of my intended size. On this one, given that this is almost entirely speculative, and probably extremely dangerous, my only recommendation would be to go in with 10% of intended position size or even less. It's not like there is an options market for this thing, so there goes that idea.